Moody’s Investors Service last week downgraded its rating to Ba3 from Ba1 on Ypsilanti Public Schools general obligation bonds, warning that the troubled Michigan district may face a so-called payless payday this year.
The rating agency retained its negative outlook at the lower rating. Moody’s lowered its rating to Ba1 from Baa2 last April affecting $59.7 million of outstanding GO bonds.
The district’s financial problems, led by a worsening general-fund deficit, could trigger a financial review by the state, Moody’s said.
Challenges include a worsening general fund deficit, declining enrollment and falling property tax valuations, according to analysts.
“The negative position creates the potential of missed payroll at some point in the fiscal year, given statutory limits on the amount of education aid that can be borrowed as an advance from the state,” Moody’s said in the downgrade report.
The district is expected to continue to meet debt-service payments on its bonds, which are secured by unlimited-tax levies and Michigan’s School Bond Qualification and Loan Program, under which the state has a constitutional obligation to make the payments.
The district has limited ability to raise new revenue. Officials are exploring forming a new district with a neighboring school district.
Voters will decide on the consolidation effort Nov. 6.
Moody’s analysts warned that a defeat of the consolidation effort without further cuts or requests for emergency funds from the state could spark another downgrade.
The appointment of an emergency manager could bring some relief but also more uncertainty, Moody’s said.
